Business customers shun bank mergers amid falling sentiment

(7 May 2007 – Australia) Business customers who currently bank with a non-Big Four bank would prefer their bank to merge or be taken over by a foreign or regional bank rather than one of the domestic Big Four banks, according to research by East & Partners.In light of recent debate on consolidation in the banking sector sparked by Bank
of Queensland’s proposed merger with Bendigo Bank, East asked business customers
in the March Business Banking Sentiment Index to rate the likelihood of them
moving elsewhere if their bank was subject to a merger or takeover.

Using a scale of 1 being ‘would definitely NOT switch’ and 10 being ‘would
definitely switch’, SMEs (businesses turning over A$5 to 20 million a year)
rated the notion of being swallowed up by a Big Four bank 8.24. SMEs rated the
likelihood of changing if a foreign bank moved in 6.45 and 5.50 in the case of
another regional bank or St George taking over.

Larger companies in the Lower Commercial (or Middle Market) segment (A$20 to 100
million turnover) were even less enthusiastic, rating the chance of moving
elsewhere 8.50 in the case of a Big Four bank; 6.50 for a foreign bank; and 6.00
for a regional or St George.

Interestingly, Micro Businesses (A$1 to 5 million turnover) were the least
jaundiced of the three segments – 7.83, 5.68 and 4.50 respectively – an
indication of the lack of feeling or attachment to banks generally in this small
business segment.

“In many cases, SMEs and middle market customers have made a strategic choice
not to bank with one of the Big Four so the idea of becoming one of their
customers by default does not appeal at all,” East & Partners financial markets
analyst Zoran Knezevic said.

“It is revealing that a foreign bank, which on the face of it would be less well
known to Australian business customers than a Big Four bank and potentially less
committed to the domestic market in the long term, is viewed more favourably
than large Australian banks,” he said.

Businesses also saw industry consolidation in a negative light. Some 76.5
percent of all the businesses (Micros, SMEs and Lower Commercial enterprises
combined) interviewed in March’s Business Banking Sentiment Index said they
viewed a potential merger or acquisition of their current bank as negative.

Only 7.7 percent of businesses believed a merger or takeover would be beneficial
in terms of service. The remaining 15.8 percent of businesses said they were
neutral.

“Australian businesses are negative about potential industry consolidation
because they will have less choice in a market where there is much room for
improved service, and where smaller and regional banks have performed better
than larger banks,” Mr Zoran Knezevic said.

Elsewhere in the Business Banking Sentiment Index, the Sentiment Score fell to a
new low of 42.1 points (out of 100) in March 2007. But there was a mixed
performance across the market and many banks experienced improvements in
customer sentiment.

(The Sentiment Score is an aggregated metric comprising four different measures
of customer sentiment – Empathy, Satisfaction Loyalty and Advocacy. All of these
scores are a rating given by customers, not a response to a Yes/No question.)

St George continues to lead the market on overall customer sentiment with Bank
of Queensland and HSBC following behind. In the March Index, St George customers
awarded their bank an overall Sentiment Score of 56.6 points, ahead of BOQ and
HSBC customers who gave their banks Sentiment Scores of 53.8 and 51.0 points
respectively.

Additional evidence that Australian businesses are warming to new propositions
from banking providers is offered by the strong performance of BankWest in the
business banking markets. East’s Index for March finds that business customers
nominated BankWest as the fourth “top of mind” business bank, after National
Australia Bank, ANZ and Westpac and ahead of Commonwealth Bank and St George.

All of the Big Four domestic banks except the CBA saw their sentiment scores
rise marginally during March 2007.

NAB’s Sentiment Score rose from 46.4 to 46.5 points and ANZ score moved from
43.8 to 43.9 points, while Westpac’s score grew from 37.3 points in February to
37.5 points in March 2007. CBA’s score continued to erode palpably, declining
from 34.1 points in the previous Index to 32.9 points in March.

About East & Partners’ Business Banking Sentiment Index

The East & Partners Business Banking Sentiment Index is a monthly survey of
business customer sentiment towards banks, providing a monitor of customer
satisfaction, loyalty, advocacy and empathy towards business banks. Each month
East & Partners’ research team conducts telephone interviews with a sample
of 500 businesses nationally, turning over A$1 to 100 million per annum,
comprising:

For more information please contact:

Zoran Knezevic
Financial Markets Analyst
East & Partners
T: 02-9004 7848
M: 0409 129 599
E: zoran.k@eastandpartners.com